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Germany’s power grid - a model for the Energy Transition

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Welcome to the latest DNV GL Talks Energy podcast series, which was recorded live at the Singapore International Energy Week (SIEW) 2017. Each week notable industry thought leaders join us to discuss the hot topics from SIEW, and provide their insights into the main drivers behind the global energy transition.

Germany is leading the way in integrating renewables into their energy system. In this inspiring episode, Dr Dirk Biermann, Chief Markets and System Operations Officer at 50Hertz shares with DNV GL how 50% of renewables penetration has been achieved, and what lessons can be learnt by other countries wanting to follow suit.

In this engaging interview, Dirk shares with us the three phases of successful high renewable penetration, and shares Germany’s findings on how to deal with the intermittent and decentralized nature of volatile renewables. He discusses how more adaptive pricing structures have supported the increased proportion of renewables; and shares his views on whether technology developments will have a further impact on price. He also gives us an insight into the innovative WindNODE Projekt, and discusses the delicate balance between capacity and scarcity of the power supply; alluding to what the future will hold in this regard.

NARRATOR Welcome to the DNV GL Talks Energy podcast series. Electrification, rise of renewables, and new technologies supported by more data and IT systems are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.

MATHIAS STECK Dirk, nice you’re here. We want to discuss energy transition today, a very vibrant topic everywhere in the world, but of course also in Germany, where you are coming from. Before we start, it would be great if you could introduce yourself, as well as 50Hertz, for us a little bit.

00:00:51

DIRK BIERMANN Yes, I’m managing director in 50Hertz. That’s easier than the long title that you have mentioned. 50Hertz is one of four transmission system operators in Germany, and we cover, with our grid area, mainly the north-eastern part of Germany, the former GDR, but also some parts around Hamburg and Hamburg itself.

MATHIAS STECK Yes, okay. So, Hamburg is my hometown, so I can relate to this. Yes, very good. So, there are many reports out there forecasting the future of the energy system, and it’s clear we have a transition ahead. DNV GL has just launched the energy transition outlook here on the Singapore International Energy Week, and we foresee that renewables will have a huge role to play in the future; where we move to more electrification, for example, of the areas, transport and heat.

And while we’re here in the region around Singapore, SouthEast Asia, where the renewable share in the grid is relatively small still compared to other regions, I think Germany is one of these regions or countries where there’s already a lot of renewables and where many people can learn from. Maybe you can share with us a little bit what are the challenges for you, as transmission system operator, with such a great share of renewables in the system?

00:02:11

DIRK BIERMANN Yes, indeed Germany is a kind of a lab, and especially the 50Hertz area is a kind of a pilot region for renewables integration and for a clean future, since we have already now 50% share of renewables in comparison to the consumption in our area. So, 50% is coming from renewables. And this, of course, gives quite a lot of challenges, since it is mainly from volatile renewables. So, it’s mainly from wind power and solar power. So, all the intermittency, all the decentralized nature of renewables, is the challenge that we have to cope with, that we have to master.

MATHIAS STECK Right, so you mentioned 50%. That is really large amount. How do you handle this? I’m looking really out for what can this region or other parts of the world learn from the German experience. So, how can you handle these high amounts of renewables? Is it, like, better power electronics, or is it, you know, working together with neighbouring countries that you can maybe have some loop flows to get rid of the electricity which is not required in your grid? Can you share a little bit with us how that works?

DIRK BIERMANN This is, of course, a difficult question, and also the answer is a difficult one and not a simple one that there’s one measure and then it is done. When you look on this development, I would like to differentiate there are three different stages, three different phases of renewables penetration. In the first phase, there’s simply nothing to do. You integrate a few windmills or some PV panels, and that’s it. And maybe you have to take care of additional grid connections; maybe you have to do some very specific and very local reinforcement of your grid, and that’s it.

00:04:19

And then, with a couple of percent, you enter into a second phase, where you have to take actions to manage this. But these actions typically are first of all technical actions that you have to take. For instance, you have to make sure that stability in the grid is still ensured, that you adjust your control power schemes, that you need to level out the fluctuations. But you do just gradually, and it’s not a, it’s not a revolution, it’s just evolution, I would say.

But then, when you approach interconnected system, I would say, maybe the 40% or the 35%, then it becomes serious, because then it’s no longer just about making some technical enhancement, but then it is really about redesigning, rethinking the system, and redesigning the market, which is not only, of course, a TSO issue, but which is an issue of politics of the whole society. But then, with such high shares of renewables, it does not go without this redesign of the market.

And this what we have to some extent already done in Germany. And what we are currently doing that we adjust, that we further develop the market to absorb these high share of renewables. One important step there or important thing there that has to be done is how to deal with this intermittency of the renewables. And you can imagine, with some 35-gigawatt wind respectively, solar power in Germany, the volatility is enormous.

00:06:04

And the first step that we had done in the past already was that we built up a quite liquid intraday market that was good, that was to some extent not directly connected to the renewables development. But then, and this is still our task, we have been developing this market further towards the needs of renewables integration. What do I mean with this? We shortened the lead times on this intraday market. We increased the granularity of products on the markets from 1-hour products to 50-minute products.

And we did this to enable the market participants to balance themselves using the products of the market, using the products of the intraday market. And of course, the shorter the lead times are, the better you can estimate, you can forecast your balance you need, and then you can react. So, we did these things, and nowadays you see that this was successful, since the volumes for regulating power decreased, while the volumes of the intraday market are increasing.

MATHIAS STECK Right, so, it’s interesting talking about markets and talking also about price point. I think, correct me if I’m wrong, today we are very much still focused on price per kilowatt-hour. We are thinking, with very high renewables scenarios, that we need to get into more, you know, adaptive pricing structure where other services to the grid can have a price tag as well, like ancillary services for frequency stabilization, for example. What do you foresee happening in Germany there, or are there maybe some developments like this already?

00:07:59

DIRK BIERMANN I must say that I’m quite relaxed there. Of course we will be in the need of more flexibility than today because of more intermittent energy producers in the future. But this increase will be a rather moderate one. It is strongly correlated to PV, not so much to wind power, and we are very confident that also in the future we will have more than enough flexibility in Germany available. Nowadays this can be proved with the prices for flexibility.

Flexibility prices are quite low in Germany, which is also, I would say, the major reason why further technological development is not so much incentivized at the moment, because the prices are low and it does not make very much economic sense to do so. By the way, the same with batteries. Batteries can be very useful in the system, but nowadays, with low flexibility prices in Germany, it’s difficult for them to build a business case. In the future, okay, this will change a little bit, but I don’t see any major disruption there.

So, also for the future, I would predict that we will have no scarcity in flexibility, that will have very moderate flexibility prices. Since we have a lot of options how to provide flexibility, it can be in a world with less conventional power than today; it can be the renewable plants themselves providing flexibility, it can be batteries, it can be demand response. So, all these technologies are already somehow available, and they are available at rather low marginal costs. So, where should the high prices come from?

00:10:01

Another point, of course, is the adequacy in the system that even though flexibility might be available, we might not have enough capacity available to cover peak load while the wind is not blowing and the sun is not shining. And there I foresee scarcity within the next years. Nowadays we’re still in a phase with overcapacity in German market. Prices are very low. It’s difficult to see any investment signal on this market for new capacity, and a lot of capacity will be decommissioned in the next years.

And then 2020, 2022, I would expect that we will see some scarcity in generation adequacy, and well, well before this politics have to make a decision; whether they continue to bet on the energy only market and say, “okay, the price spikes will come with the scarcity and then the investment signals will be there”; or whether they are not so confident, and then we will have to establish some capacity remuneration schemes or capacity markets or whatsoever.

MATHIAS STECK Right, I mean, it’s interesting. You know, there is this challenge of… There’s a big opportunity of moving into a decarbonized future with renewables. I think it’s clear it’s going to come, but as you clearly describe, there are some technical challenges, but there’s also uncertainty here and there because we don’t exactly know how politicians make decisions; how maybe different countries who could collaborate to, you know, get something out there on a big, larger scale; how all this will pan out. So, as 50Hertz, how do you innovate? How do you get prepared for the future, looking ahead?

00:11:48

DIRK BIERMANN There are two pillars of our development. The one is, of course, hardware. We have to extend the grid for the transport of wind power from north to south. We have to enforce the, reinforce the interconnections with our neighbours because this is good for the balancing of the system if you connect different generation portfolios with different shares of renewables and so on and so forth. So, this is one pillar; a very costly one, a very big one. The second pillar is developing an intelligent system based on digitalization, based on innovations that we currently see.

And I would like to give you one example there. And that is the WindNODE project. Very famous, very well known in Germany, maybe not so much abroad. This is a big project together with some 40-50 partners; 50Hertz is leading this project . And there we currently build a kind of prototype of the future decentralized and green world. And it’s a real, it’s a real-life lab, a real-life prototype there. So, we really work together with the partners in their different roles, like distribution system operators, like providers of flexibility, and so on and so forth. And the aim is to organize this with intelligent communication and smart interactions of all market players.

MATHIAS STECK So, talking about decentralization, it’s of course, a huge topic in many areas of the world. If you look at this area of the world, you have a lot of islands which need power. So, the findings in this project, how do you plan kind of to make that tangible for society? How can we, you know, how can we participate in this and learn from this?

00:13:47

DIRK BIERMANN It’s a very nice question, since one of the aims of this project, of the windmill project is what we call dissemination; that we want to make the solutions developed there tangible to the outside world, to the society. Why? First of all, of course, because it is a good test, and it is good if politicians, decision makers understand what is going on, but then also to create acceptance for the energy transformation. And we believe that this acceptance, which is very high at the moment in Germany, even though energy transformation is a very costly issue in Germany, nevertheless we have the acceptance.

But to keep this, it is good that people really understand what it is all about, so, this is one part of the project to create, for instance, showrooms, where you can touch, where you can explore the intelligent solutions from WindNODE yourself. And the second thing that we have very high on our agenda, as 50Hertz, is that we want to bring this, to share this knowledge also with the outside world, so, abroad. And we have founded a daughter company that is called EGI.

And the purpose of this daughter company is to go global with the knowledge from energy transition in Germany, also with some other knowledge also from our Belgian colleagues in the group, and from asset management, share this, and this will also help to get a better understanding for the energy transformation in Germany. That what I have learnt, it’s not only a German energy transformation, but it is a global trend with many countries envisaging similar amounts of renewables, and it’s good to put all available best practice together.

00:15:49

MATHIAS STECK Right, so, one thing actually, we have talked about technical challenges in this transformation. One thing I pick up talking to many people from the industry, there is a second challenge we have, as companies, that we also need to have a kind of transformation of the skills we apply to these changes. So, as a transmission system operator, what do you think are the skills you require in addition to those you have now, and how do you get to those skills?

DIRK BIERMANN The first skill is a very basic one. Since we have to extend the grid so much and we have to deal so much now with society, with authorities, with politics to get the permissions for new infrastructure, we have to learn to be more open, to be more transparent than in the past, and to really involve people, to really involve society to get a certain level of acceptance, even though it remains difficult, but to get a certain level of acceptance for our infrastructure projects and thus to get the permissions.

This is a very basic skill, but we have to learn it because in previous times that was not necessary, that was not recognized as an important skill. Then, of course, we have to be much more agile than in the past. Look, on the volatility, on the intermittency, we have to react quickly.

00:17:19

We need very fast and very efficient decision-making processes in the company that we did not have in the past. So, we had to evolve also our company culture for that, and finally, it’s of course, very much about big data, about digitalization. So, we need new skills in data analytics, in IT, in telecommunication. This is a big challenge for us.

MATHIAS STECK Dirk, unfortunately, we come already to an end of this episode, but I have one last question for you, and this is, “What is your major takeaway from the Singapore International Energy Week 2017?”

DIRK BIERMANN It is really great event at a great place, so, I understand that Singapore — for me, it’s the first time in Singapore — that this is really a hub where things develop faster than elsewhere. It’s a hub that we hopefully can use also from a European perspective to spread, to share our knowledge with our Asian partners, and I think, for this, the Energy Week is really the perfect place, the perfect event. And I was really impressed to see how many countries have really a very positive attitude towards energy transition, energy transformation toward the global climate targets, and how ambitious they are. So, we are not alone in the world with our energy transformation in Germany, which is good.

MATHIAS STECK Right, these are very nice words to close on. Dirk, many thanks for these valuable insights, sharing the experience as a transmission system operator from Germany. I think a lot we can learn also for other parts in the world. And to the listeners, thank you very much for listening in. This was Dr Dirk Biermann, Chief Markets and System Operations Officer, from 50Hertz.

This episode is the last episode for year 2017, but we will be back first week January 2018 with new interesting guests. I would like to take the opportunity to convey season’s greetings and wish all of you a happy new year.

NARRATOR Thank you for listening to this DNV GL Talks Energy podcast. To hear more podcasts in the series, please visit dnvgl.com/talksenergy.